Sales Dictionary
Zero-Based Budgeting
Definition
A method of budgeting in which all expenses must be justified for each new period.
Deep Dive
Zero-based budgeting (ZBB) is a budgeting method in which all expenses must be justified for each new period, regardless of whether they were approved in previous periods. Instead of simply adjusting prior budgets, ZBB starts from a "zero base," meaning every line item of expenditure must be reviewed, analyzed, and approved as if it were a brand new cost. Managers are required to justify the necessity and cost-effectiveness of every activity and associated expense, demonstrating its value and alignment with organizational goals.
Examples & Use Cases
- 1A marketing department proposing its annual budget must justify every campaign, software subscription, and team member salary from scratch, proving the return on investment for each.
- 2A manufacturing company reviewing its production budget where every raw material purchase, machine maintenance cost, and labor hour needs to be re-evaluated and approved based on current production targets.
- 3A non-profit organization justifying every program expense and administrative cost to its board, demonstrating how each expenditure directly contributes to its mission and impact.
Related Terms
Incremental BudgetingActivity-Based BudgetingCost Optimization